23rd May 2022 09:50
(Alliance News) - Kingfisher PLC shares have buckled in recent months under the expectation that a return to foreign holiday-making and tumbling consumer confidence would spell an end to the pandemic-induced DIY boom.
The B&Q owner's first quarter numbers provided some tonic for those concerns on Monday, however, with the figures showing the FTSE 100 listing's trading remains markedly above pre-virus levels.
Shares in the company were 2.4% higher at 252.80 pence each in London on Monday morning. The stock has lost 30% over the past 12 months, however.
"Kingfisher is unquestionably in a better position than it was leading up to the pandemic, although it is becoming increasingly difficult to match the highs experienced during lockdowns as the DIY boom played into its hands. The company is now making additional comparisons with a period of three years ago, representing the business as it had previously been before an enforced and accelerated transformation plan took hold due to the restraints of the pandemic," Interactive Investor analyst Richard Hunter commented.
Kingfisher said group sales in the three months to April 30 fell 5.8% year-on-year to GBP3.25 billion. At constant currency, sales were down 4.2%. On a like-for-like basis, they were 5.4% lower.
The retailer said its quarterly performance was "in line with our expectations".
Sales were 16% higher on a like-for-like basis compared to three years earlier, before the onset of the pandemic.
Stay-at-home measures contributed to a spurt in home improvements, boosting the likes of Kingfisher.
However, sales growth compared to pre-pandemic times has slowed, as that bump in demand wanes.
In the first quarter of the previous financial year, sales were 23% above pre-Covid times.
Hunter added: "Indeed, the group flagged at the full-year numbers in March that the first quarter of this year had seen a slowdown in sales, and an overall revenue decline of 5.8% is underpinned by falls of 14% and 6% for group sales in the UK and France respectively. Nonetheless, Kingfisher is content that momentum is promising going into the second quarter, with like for like sales in the first two weeks of May declining by just 2.5% and ahead by 22% on a three-year comparison.
"Whereas the previous concern had been that pent-up holiday demand would replace the DIY share of individual spending - which has been seen to an extent - the next few months are likely to represent a demanding time if the cost of living crisis emerges as is largely expected."
Despite first quarter sales falling year-on-year, the market took confidence from Kingfisher's update. The company said it is managing "inflation pressures effectively" and is seeing product availability approach pre-virus levels.
AJ Bell analyst Russ Mould said: "Sales are proving more resilient than some might have feared. This suggests there is still some pent-up demand for home improvement despite the pressures on household budgets. While inflationary pressures are a challenge which the company is having to manage, it sounds like the supply chain problems which had been dogging the DIY sector, like so many others, is at least starting to ease.
"This is crucial, as one of the absolute musts for a retailer is to have the right products available to customers in the right place and at the right time – so news that Kingfisher's product availability is approaching pre-Covid levels is a significant milestone."
The announcement of another buyback also helped the stock.
The company also has more "surplus capital", which in line with policy will be returned to shareholders. It plans a further GBP300 million buyback.
After navigating the pandemic successfully, AJ Bell's Mould noted that the "real work" for the company has only just begun.
"It needs to protect margins and keep its prices keen enough to attract customers, which is a tricky balancing act," Mould explained.
By Eric Cunha; [email protected]
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